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* Pitfalls of 'merger of equals' emerge amid clash over CFO
* Omnicom, Publicis tie-up delayed by antitrust, tax reviews
* Both sides remain committed to deal - sources
* Dutch tax authorities cool on UK tax residency plan -sources
By Leila Abboud and Tom Bergin
PARIS/LONDON, April 27 (Reuters) - The chief executives ofadvertising companies Publicis and Omnicom Group are working together to resolve a seven-month-oldstruggle over who will be chief financial officer of theircombined group if the $35 billion merger is completed, threepeople close to the deal said on Sunday.
John Wren, the head of New York-based Omnicom, and MauriceLevy, his opposite number at Paris-based Publicis, are inregular contact to try to settle the CFO choice, which hasfuelled tensions between the two sides since September as theyseek to secure regulatory approvals for the blockbuster deal,the people said.
Both remain committed to the tie-up, which would create theworld's biggest ad agency ahead of current leader WPP,added the sources.
The infighting over the CFO shows the pitfalls of trying toengineer a "merger of equals" as the deal was billed when it wasannounced to much fanfare in July.
Some analysts, investors and rivals have expressed doubtsover whether executives and staff in the two companies,especially their veteran CEOs, will be able to effectively worktogether if the deal is completed. Other mergers with similarprofiles, including a 2006 Franco-American tie-up betweentelecom equipment makers Alcatel and LucentTechnologies, have foundered over culture clashes.
The CEO of rival WPP, Martin Sorrell, said on Friday thatmost people he was speaking to said there was now a third to ahalf chance that the deal would not be completed.
The tensions between the top executives of the two companieswere first reported by the Wall Street Journal on Friday.
The merger calls for a 50-50 ownership split of the equityin the new company, Publicis Omnicom Group, with Wren and Levyserving as co-CEOs for 30 months from the closing.
The two companies initially aimed to close the deal in thefirst quarter of this year, but an ongoing China antitrustreview and tax jurisdiction issues that were disclosed byOmnicom last Tuesday have delayed completion. Publicis said lastweek that the deal would close in the third quarter, butOmnicom's Wren now declines to predict timing.
Omnicom wants its CFO, Randall Weisenburger, to get the topfinance job, while Publicis wants its CFO, Jean-Michel Etienne,the people said.
PROFIT MARGIN QUESTION
Behind the spat over the group's finance chief is a deeperquestion about how the new operation should be run, said two ofthe people.
To boost profits, Publicis has long centralised manypurchasing and support functions for the roughly dozenadvertising agencies it owns, such as Saatchi & Saatchi, LeoBurnett and Razorfish. Analysts say the approach has helpedPublicis achieve higher operating profit margins than itsrivals; its margin stood at 15.9 percent last year, comparedwith 12.5 percent for Omnicom and 15.1 percent for WPP.
The choice of the CFO could determine whether the newcompany adopts the Publicis approach or the more decentralisedmodel favoured by Omnicom in which individual agencies have moreleeway in everything from technology systems to supplies, thepeople said.
"There are ongoing talks on the leadership issue," said oneof the people on Sunday. "Wren and Levy are determined to find asolution because it is simply in the interests of bothcompanies. The best guarantee of success is the two CEOsdetermination to complete the deal."
The companies also continue to work on resolving tax issuesthat have slowed down the deal. Wren spooked investors onTuesday when he disclosed that the companies had not yet beenable to get approval for their plan to have a tax residency inBritain, while being legally headquartered in the Netherlands.
Although the British tax authorities sent a positive signalin meetings with the companies over the new entity being taxresident in Britain, the Dutch authorities were not supportive,two of the people said. The Dutch rejected the idea that the newcompany could be legally based in that country but not besubject to local tax rules.
"The Dutch authorities expressed a desire not to lose theirtax sovereignty over the new company to the English," said oneof the people.
One option to solve the problem might be to seek doubleresidency for tax purposes in both Britain and the Netherlands,which is rare but may be workable, the person added.
Publicis and Omnicom continue to work on the issue. TheDutch and the British would have to agree for Omnicom andPublicis' original British tax residency plan to become areality.
Another approval needed from France's tax authority is ontrack and not expected to pose a problem, the sources said.
OTHER SIGNS OF TENSION
Besides the tussle to name the finance chief, there areother signs that relations between the two companies arefraying.
They have not been able to agree on which company will belisted as the "accounting acquirer", or the buyer from anaccounting standpoint, on official filings to the U.S.Securities and Exchange Commission. While the issue is atechnicality, it has gotten tangled up in the CFO fight, one ofthe people said.
Usually in an acquisition, the accounting acquirer is theparty receiving the bigger share of the equity and voting rightsin the new company. In the Omnicom-Publicis deal both sides aredue to receive an equal stake and voting rights in the newcompany, so a series of criteria must be analysed to determinewhich side is the accounting acquirer.
Robert Willens, a corporate tax and accounting analyst basedin New York, said the dispute over accounting acquirer pointedto a disagreement over management control.
"That could be symptomatic of other, more deep-seatedconflicts between the companies," he said.
WPP's Sorrell said he would prefer the deal go ahead becausein his view mergers of equals don't work. "I think the bestresult for us, frankly, would be for the deal to go ahead withjoint CEOs, fighting with one another about who's running thecompany," he said in a Reuters Insider interview.
(Reuters Insider: r.reuters.com/qax78v)
Sorrell said the results conference calls from Publicis andOmnicom last week "sounded like two ships passing in the night." (Additional reporting by Anjuli Davies and Jennifer Saba;Editing by Martin Howell)
